The government may need to take a stake in parts of Britain’s struggling industrial sector to help companies in their long and expensive recovery from the Covid-19 emergency, a leading employers’ organisation has said.
Make UK – the body that represents manufacturers – said ministers might need to look beyond the provision of subsidised loans if they were to help producers through a slump on course to be even more severe than current official estimates.
With its latest survey showing a dramatic fall in orders and sales, Make UK is particularly concerned about the outlook for larger mid-sized firms that are not listed on the stock exchange but form a vital part of the UK’s manufacturing base.
Stephen Phipson, Make UK’s chief executive, said: “All the indications at the moment indicate that, even if a gradual easing of lockdowns begins soon, the impact of this shock will continue to hit companies and livelihoods for some time to come. As such, government may need to be flexible with its future support schemes in the same way that industry is going to have to be flexible with its recovery plans.”
In its lobbying of ministers, the employers’ organisation has been arguing that there will be a medium-term need for government to support a recapitalisation effort for businesses that will struggle to repay debt incurred during lockdown.
“Some of the current schemes don’t work for everyone, with a lot of firms very nervous about taking on big debts in this climate with no certainty about when they can repay it,” Phipson said. “In that context, government should be working with the banks and other partners to consider a wider range of options.”
In its projection of the likely path of the economy this year, the independent Office for Budget Responsibility said it expected manufacturing output to fall by 55% in the second quarter.
Make UK said that on the basis of its survey of almost 300 companies, the fall in manufacturing was likely to be larger and that conditions were unlikely to return to anything like normal for some time to come. It urged the chancellor, Rishi Sunak, to consider extending the government’s furloughing scheme beyond the end of June. Its survey showed:
Over three-quarters of companies said sales have decreased.
Four-fifths of companies have reported a decrease in orders.
One in five companies said their orders have fallen by more than half.
One in five companies have furloughed up to a quarter of staff, 15% by up to half.
One-third of companies will wait for an increase in orders before taking staff off furlough.
Phipson said: “While many manufacturers continue to operate and supply our food, vital medical equipment and PPE, there is no disguising that for the sector overall these are deeply worrying times.
“The extent of the collapse in demand is such it means that the recent OBR forecast could be an underestimate unless there is a quite remarkable turnaround, which, to be frank, just isn’t going to happen.”